State reverses course, says Detroit demo 'bid rigging' never happened

Detroit's demolition program and asbestos: What you need to know
Detroit Free Press

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Women hold signs for the media thanking the city of Detroit as they watch the City of Detroit Construction Services workers tear down an abandoned structure across from Bennett Elementary School in Detroit on Thursday, May 12, 2016.(Photo: Ryan Garza, Detroit Free Press)Buy Photo

A state audit of Detroit’s blight demolition initiative suspected “possible bid rigging” last year in the midst of an ongoing federal investigation into the program, according to records obtained by the Free Press.

But a state official involved in the audit said Thursday that the bid rigging suspicions discussed privately in August 2016 ultimately did not turn out to be true.

"We didn't see any bid rigging," Mary Townley, a state housing official who was at a meeting last year where bid rigging was discussed as a possibility, said in an interview Thursday. "It was probably brought up not knowing what we were dealing with until we further completed, or further got into our analysis."

A state analysis released in January may not have specified “bid rigging,” but it found $7.3 million in improper billings from Detroit seeking federal funds for demolitions, including about $900,000 in billings tied to bid manipulation in which demolition costs were moved from one house to another so that prices did not exceed a cap of $25,000 per house.

The suspicions of bid rigging arose in the summer of 2016 during a forensic audit of the city demolition program performed by two firms hired by the state— Holland & Knight and Ernst & Young. The suspicions coincided with a three-month suspension of the city's federally funded demolition program imposed by the U.S. Treasury.

The possibility of bid rigging was raised at an Aug. 17, 2016, meeting of the Michigan Homeowner Assistance Nonprofit Housing Corporation, or MHA, which began its audit the previous December.

“Holland & Knight along with Ernst & Young have been digging deep into the Detroit Building Authority and findings are not very good. Possible bid rigging going on. Funding has been immediately suspended,” minutes from the meeting show.

The minutes represent the first known instance of state officials involved in the Detroit demolition program discussing possible criminal activity.Detroit's demolition program has been under heavy scrutiny for the last two years. Following media reports in the fall of 2015 of skyrocketing demolition prices under Mayor Mike Duggan, federal authorities launched a criminal investigation that remains ongoing.

The MHA, along with its partner agency, the Michigan State Housing Development Authority (MSHDA), reviews the city's demolition invoices and approves federal funding for demolitions of vacant, blighted properties in Detroit.

Last week, government watchdog Robert Davis received complete, detailed minutes of private MHA board meetings as part of a lawsuit his nonprofit, A Felon's Crusade for Equality, Honesty and Truth, filed against the MHA in October. The lawsuit seeks to make sure the MHA is subject to the state’s Open Meetings Act, and it seeks a copy of the state’s audit report.

Davis gave copies of the MHA meeting minutes to the Free Press. Although the MHA was created by the state to distribute federal funds, it does not consider itself a public body subject to the state’s Open Meetings Act.

The minutes show the MHA board received regular updates on the state's audit of the Detroit demolition program. While the meeting minutes say bid rigging was believed to be in play, specific contractors or employees were not named.

The audit findings ultimately were given to the FBI and SIGTARP, a federal watchdog tasked with monitoring the federal funds made available to Detroit for demolitions.

Townley, vice president of the MHA board, said she typically updated the board on the state's Detroit demolition audit. She said she likely was the person who brought up bid rigging as a possibility. But on Thursday she could not immediately recall what auditors had found that drove the discussion.

Davis said the records put the federal demolition investigation in a new light. He said Duggan and state officials have misled the public by downplaying the state audit findings. When discussing the findings at a press conference in January, Duggan said he saw nothing to suggest anything criminal was going on in the demolition program.

“This is why transparency is so important in government,” Davis said. “When you have governmental entities conspiring with one another with concealing the truth to the public. The governor and (the state) all should’ve came out when the mayor flat-out lied and said this is more serious.”

Duggan spokesman John Roach denied assertions that the mayor misled the public concerning the demolition program.

"Robert Davis is the one who continually says things that are not true and the facts continue to prove that," Roach said.

Erica Ward Gerson, chairwoman of the Detroit Land Bank Authority, said the state audit was thorough.

"At the end of an exhaustive audit process that lasted several months, (the state) did not find any bid rigging," she said in a statement.

"We worked closely with the state to implement a series of new internal controls. Since those improvements were put in place, MSHDA and the Treasury Department have released another $130 million to continue the demolition program and MSHDA has fully released us from any claims regarding the bid process."

Duggan met with state auditors on Jan. 4 in Chicago to discuss the audit that ultimately found $7.3 million in improper billings.

When the audit was released in January, the city agreed to repay only $1.3 million of the improper billings. The city disputed the rest.

"The feds are doing what they should be doing. We have given them, I think, every single document that exists," Duggan said then. "I have not seen anything in this that suggests anyone did anything criminal."

Eventually, the city and the state reached a settlement. The Detroit Land Bank Authority agreed to repay $5 million in outstanding claims of improper billings. At the same time, the state agreed to make $5 million available to the city to pay for more demolitions.